26:010:680 Current Topics in Accounting Research

Transcription

1 26:010:680 Current Topics in Accounting Research Dr. Peter R. Gillett Associate Professor Department of Accounting and Information Systems Rutgers Business School Newark and New Brunswick

2 Overview Papers for Week 2 Database Normalization Key Ideas from Class 1 Homework 1 Papers for Week 1 Questions January 26, 2011 Dr. Peter R. Gillett 2

3 Papers for Week 2 Mattesich, Richard "Accounting and Analytical Methods" Chapters 1-3. Richard D. Irwin: Homewood, IL. Sorter, George "An 'Events' Approach to Basic Accounting Theory" The Accounting Review, pp Yu, S. C "The Structure of Accounting Theory" Chapter 8. The University Presses of Florida: Gainesville, FL. Bubenko, Janis "The Temporal Dimension in Information Modeling" Research Report RC IBM Research Laboratories: Yorktown Heights, NY. In Architecture and Models in Data Base Management Systems: pp Everest, Gordon C. and Ron Weber "A Relational Approach to Accounting Models" The Accounting Review (Vol. LII, No. 2): pp Smith, John Miles and Diane C. P. Smith "Database Abstractions: Aggregation" Communications of the ACM (Vol. 20, No. 6): pp Smith, John Miles and Diane C. P. Smith "Database Abstractions: Aggregation and generalization" ACM Transactions on Database (Vol. 2, No. 2): pp January 26, 2011 Dr. Peter R. Gillett 3

4 Mattessich Accounting and Analytical methods * Chrematistic Of, pertaining to, or engaged in, the acquisition of wealth * Accounting practice does not supply an objective scale of value * Accounting theory has developed a body of knowledge which is of a dogmatic rather than scientific-hypothetical character... legalistic * The pedagogic side of academic accounting overemphasizes technical aspects and does not endeavor to relate new scientific achievements to the established body of accounting knowledge * Need for a general theory of accounting January 26, 2011 Dr. Peter R. Gillett 4

5 Mattessich * Accounting can be regarded as an applied, normative discipline * A service discipline: in dependence with its master discipline, economics in relation with the other tributaries of economics and business administration in connection with the needs of economic practice * Every system of measurement... constitutes a compromise of accuracy, economy and versatility * Accuracy had to be sacrificed to parsimony January 26, 2011 Dr. Peter R. Gillett 5

6 Mattessich * AICPA definition: Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character and interpreting the results thereof * Accounting encompasses both macro-economic and micro-economic events * Accounting is a discipline concerned with the quantitative description and projection of the income circulation and of wealth aggregates by means of a method based on the following set of basic assumptions: January 26, 2011 Dr. Peter R. Gillett 6

7 * Basic assumptions: Monetary values Time intervals Structure Duality Aggregation Economic objects Inequity of monetary claims Economic agents Entities Mattessich Economic transactions Valuation Realization Classification Data input Duration Extension Materiality Allocation January 26, 2011 Dr. Peter R. Gillett 7

8 * Duality principle Mattessich * Income... the flow of goods and services... * Logico-mathematical principle Any change can be quantified in two ways: by measuring the sum total of all contributing increments and decrements (flows) by measuring the difference between the two totals (stocks) connected by this change * Income is a derivative of the wealth function * The balance sheet measure differences in stocks of income: the income statement accumulates the flows January 26, 2011 Dr. Peter R. Gillett 8

9 Mattessich * Duality principle: there exist economic events which are isomorphic to a two-dimensional classification of a value within one set of classes * Measurement theory Nominal, ordinal, interval and ratio scales Chart of accounts conceived as a nominal scale European basic charts of accounts a subtle combination of a nominal scale in the horizontal dimension and an ordinal scale in the vertical dimension Accounto-economic transactions are measured along four dimensions: two nominal scales (the chart of accounts), an ordinal/interval scale (time), and a ratio scale (dollar values) Network, double entry, journal entry, and matrix forms January 26, 2011 Dr. Peter R. Gillett 9

10 Sorter The purpose of accounting is to provide information about relevant economic events that might be useful in a variety of possible decision models Decisions as to what events are relevant (surely not all events can be recorded) must be made and can only be made with users needs in mind January 26, 2011 Dr. Peter R. Gillett 10

11 Sorter A balance sheet should be so constructed as to maximize the reconstructibility of the events being aggregated Each event should be described in a manner facilitating the forecasting of that same event in a future time period given exogenous changes January 26, 2011 Dr. Peter R. Gillett 11

12 Yu Motivation and Behavior Scarcity of Means Stocks and flows * Stocks: scarce resources measured at a point in time in terms of their economic potentials for a specific entity * Flows: occur over time, and are measured between two points in time; they cause the economic position of an entity to change Free-Enterprise System Accounting entities * Basic economic decision-making units under which scarce resources are possessed and utilized Going Concern Utility January 26, 2011 Dr. Peter R. Gillett 12

13 Yu Economic events and accounting transactions * Economic events are a class of phenomena which reflect changes in scarce means resulting from production, exchange, consumption, and distribution * Accounting events Identifiable with specific entities Socioeconomic, as well as legal, in nature Meaningful primarily in terms of stock-flow relationships Measurable in terms of not only certain well-defined measurement scales and units of measure but, most of all, of maximum likelihood Exchange transactions, or the equivalent, including both internal and external entity activities Neutral in nature and have a sufficient degree of verifiable content January 26, 2011 Dr. Peter R. Gillett 13

14 Measurement Units of Measure Periodicity Communication Yu The Appendix presents a historical survey of the development of these twelve Accounting Postulates January 26, 2011 Dr. Peter R. Gillett 14

15 Bubenko Discusses binary relational model from the point of view of a conceptual framework where time is treated in an unrestricted fashion Section 3 discusses the central issue of Conclusion materialization January 26, 2011 Dr. Peter R. Gillett 15

16 Everest & Weber DBMS deal with real entities such as jobs, projects, departments, people, and parts The accountant deals with many artifacts Charts of accounts are useful taxonomies, classification schemes or naming conventions rather than real entities Paper applies relational model to accounting, integrating accounting and information theories January 26, 2011 Dr. Peter R. Gillett 16

17 Abstraction Aggregation Smith & Smith 1977a * Reifies a relationship between objects into a higherlevel object, creating a new data type, called aggregate RDBMS do not have good programming constructs to support real-world abstractions (This was 1977 now OODBMS and ORDMS?) January 26, 2011 Dr. Peter R. Gillett 17

18 Smith & Smith 1977b Distinguishes aggregation from generalization Generalization * An abstraction that reifies classes of objects into generic objects, creating a new data type called generic Normal forms do not address abstraction Paper shows how to structure relational databases to support both aggregation and generalization January 26, 2011 Dr. Peter R. Gillett 18

19 Database Normalization Relational databases and other data processing systems can suffer from a number of anomalies Proper application of REA modeling should avoid these problems by automatically generating 3NF data Problems may be encountered, though, with data designed in other ways January 26, 2011 Dr. Peter R. Gillett 19

20 Database Normalization Data anomalies * Insertion anomalies inability to add certain data * Deletion anomalies deleting data in one place causes a loss of other data that needs to be retained * Update anomalies changes must be made in multiple locations January 26, 2011 Dr. Peter R. Gillett 20

21 Database Normalization Functional dependency * If in a table with two attributes, X and Y, there is only one possible value of Y for each possible value of X, Y is said to be functionally dependent on X * Thus secondary keys are functionally dependent on the primary key (although this is not the only kind of functional dependency) January 26, 2011 Dr. Peter R. Gillett 21

22 Database Normalization Derived fields * Transitive dependencies Functional dependencies not originating from the primary key * Calculated fields Functionally dependent on values in other tables January 26, 2011 Dr. Peter R. Gillett 22

23 Database Normalization Unnormalized tables First Normal Form (1NF) Second Normal Form (2NF) Third Normal Form (3NF) Boyce/Codd Normal Form (BCNF) Fourth Normal Form (4NF) Fifth Normal Form (5NF) Domain/Key Normal Form (DK/NF) Sixth Normal Form (6NF) January 26, 2011 Dr. Peter R. Gillett 23

24 1NF Database Normalization * No repeating groups 2NF * 1NF + Full dependence on the entire key 3NF * 2NF + No derived fields January 26, 2011 Dr. Peter R. Gillett 24

25 Fabulous Furniture Forum Fun Family Furniture Sales Invoice Customer: Customer ID: 9876 Benjamin Sisko Deep Space Nine Alpha Quadrant Invoice #: Date: 12/31/2350 Salesman: Jean-Luc Picard 1 x Executive $55,000 55,000 2 x Office $3,500 7,000 Subtotal: 62,000 Intergalactic Shipping 33,000 Total: $95,000 January 26, 2011 Dr. Peter R. Gillett 25

26 Database Normalization What data is on this invoice? (Customer#, Customer, Address, Invoice#, Date, Salesman, {Qty, Item, Price, Value}, Shipping, Total) * This is unnormalized data because of the recurring items * Value and Total should not be stored because they can be calculated from other data January 26, 2011 Dr. Peter R. Gillett 26

27 Database Normalization (Invoice#, Customer#, Customer, Address, Date, Salesman, Shipping) ([Invoice#], Line#, Qty, Item, Price) * These tables are 1NF * The Invoice table is 2NF but not 3NF because Customer and Address depend on Customer# which depends on Invoice# * Salesman names and Item descriptions are repeated on these tables unnecessarily * On the Invoice-Line table Price is not determined by the key at all - we still need to know the Item number January 26, 2011 Dr. Peter R. Gillett 27

28 Database Normalization (Invoice#, [Customer#], Date, [Salesman#], Shipping) (Customer#, Customer, Address,... ) (Salesman#, Salesman,... ) (Item#, Item,...) ([Invoice#], Line#, [Item#], Qty, Price) * But now the final table is not 2NF because Price depends only on [Item#] - and Line# is useless January 26, 2011 Dr. Peter R. Gillett 28

29 Database Normalization (Invoice#, [Customer#], Date, [Salesman#], Shipping) (Customer#, Customer,... ) (Salesman#, Salesman,... ) (Item#, Item, Price,...) ([Invoice#], [Item#], Qty) * These tables are 3NF January 26, 2011 Dr. Peter R. Gillett 29

30 BCNF Current Topics in Accounting Research Database Normalization * All determinants must be candidate keys * E.g., Interviews Staff each are allocated a specific interview room each day, though several of them may be allocated the same room at different times. Each applicant is interviewed only once on any given day, but may be interviewed on different days. * (Applicant#, Date, Time, Staff#, Room#) {Staff#, Date, Time}, {Room#, Date, Time} are candidate keys {Staff#, Date} determines Room#, but does NOT form a candidate key (does not determine Applicant# or Time) Update anomalies occur in changing the allocated rooms January 26, 2011 Dr. Peter R. Gillett 30

31 Database Normalization 4NF and 5NF deal with multi-valued attributes DKNF * Free of anomalies but not always achievable 6NF * Recently proposed to deal with temporal data January 26, 2011 Dr. Peter R. Gillett 31

32 Database Normalization Storing Balances * Technically wrong * Sometimes still done for convenience * Imposes extra processing burden to ensure correct Recording agents: customers/vendors * Can you be certain who you shipped to and who you paid? * Omit if you can * For now assume not!... Inventory * Are items uniquely identified (like cars) or not (like books) Cash as a resource * Cash account numbers January 26, 2011 Dr. Peter R. Gillett 32

33 Key Ideas from Class 1 The Semantic Modeling Principle * Data in an information system should model the structure of the relevant categories of reality in its application domain January 26, 2011 Dr. Peter R. Gillett 33

34 Key Ideas from Class 1 1 Identify the significant events 2 Identify the related resources 3 Identify the related internal and external agents 4 Identify relationships between entities 5 Specify the optionalities and cardinalities of the relationships 6 Identify the attributes of the REA entities Identify the information processes Design the data repository structure Implement the design January 26, 2011 Dr. Peter R. Gillett 34

35 Key Ideas from Class 1 Business Transaction * Predefined set of activities and/or processes of persons which is initiated by a person to accomplish an explicitly shared business goal and terminated upon recognition of one of the agreed conclusions by all the involved persons although some recognition may be implicit January 26, 2011 Dr. Peter R. Gillett 35

36 Key Ideas from Class 1 Extended REA Ontology (Gillett 2003/10): * Economic Resources (R) * Significant Events Economic Events (E) Commitments (C) Business Events Instigation (I) Facilitation (F) Terminal (T) * Economic Agents (A) Internal Agents External Agents * Business Location (L) Facilitation and Terminal events are best thought of as the beginning or end of economic events or commitments that we choose to record separately January 26, 2011 Dr. Peter R. Gillett 36

37 Key Ideas from Class 1 Extended REA Ontology (Gillett 2003/10): * Relationships Duality (E E) Transfer Transformation Resource-flow (E R) Inflow» Take» Production Outflow» Use (entirely)» Consumption (in small parts)» Give Participation (E A) Inside» Accountability» Authorization Outside Site (E L) January 26, 2011 Dr. Peter R. Gillett 37

38 Key Ideas from Class 1 Extended REA Ontology (Gillett 2003/10): * Relationships Linkage (R R) Composition: Shirts are composed of fabric, thread, buttons, labels, etc. Substitution: White Packing Tissue substitutes for Ivory Packing Tissue Association (A A) Responsibility: Managers are responsible for Secretaries Assignment: Salespersons are assigned to Customers in their region Cooperation: One Vendor cooperates with another Vendor Custody (A R) Cashier has custody of Petty Cash Designation (A R) Customer designates a new Ship Certification (A R) Vendors certified to supply specific Inventory Approved Vendors List January 26, 2011 Dr. Peter R. Gillett 38

39 Key Ideas from Class 1 Extended REA Ontology (Gillett 2003/10): * Relationships Fulfills (C E) Contract: Shipment fulfills the Sales Order Schedule: Production fulfills the Job Order Reserves (C R) Sales Order reserves Finished Goods Partners (C A) Customer partners the Sales Order Reciprocal (C C) Materials Requisition is the reciprocal of the Production Order We are recording the (mutual) commitment to the (non-cash) initial event in economic exchanges; strictly,commitment events are paired in reciprocal relationships. January 26, 2011 Dr. Peter R. Gillett 39

40 Key Ideas from Class 1 Extended REA Ontology (Gillett 2003/10): * Relationships Instigates (I C, I E, I F) Requisition instigates Purchase Order Facilitates (F E, F C) Picking facilitates Shipping Necessitates (E T, C T) Receipt of goods necessitates Storage Demands (I R) Requisition demands Inventory Authorization (I A) Inventory Manager authorizes the Requisition Involves (F R), (T R) Marshals» Picking marshals Inventory Participation (F A), (T A) Inside» Accountability January 26, 2011 Dr. Peter R. Gillett 40

41 Event-Oriented Modeling Economic Resource * Good, right, or service of value, under the control of a person Economic Event * Occurrence in time wherein ownership of an economic resource is transferred from one person to another Economic Agent * Persons and agencies who participate in the economic events of an enterprise or who are responsible for subordinates participation January 26, 2011 Dr. Peter R. Gillett 41

42 Event-Oriented Modeling Economic Exchange * Type of a business transaction where the goal is an exchange of economic resources between two persons where both parties derive higher utility after the completed business transaction Usually involves two economic events each incrementing or decrementing a different resource in a duality relationship January 26, 2011 Dr. Peter R. Gillett 42

43 Event-Oriented Modeling Commitment * Making or accepting of a right, obligation, liability, or responsibility by a person that is capable of enforcement in the jurisdiction in which the commitment is made Economic commitment * Type of commitments by one person to transfer economic resources to another person at some specified point in the future Economic commitments may be bundled into * Economic agreements (incomplete, not subject to legal enforcement) * Economic contracts (complete, enforceable) We will often use informal mutual commitments January 26, 2011 Dr. Peter R. Gillett 43

44 Event-Oriented Modeling Economic Claims * Expectation of one person to receive a future inflow of economic resources from another person because of an economic exchange which is presently incomplete A claim is materialized by an event in an economic exchange It is settled by a requiting event in the economic exchange e.g. Accounts Receivable January 26, 2011 Dr. Peter R. Gillett 44

45 Event-Oriented Modeling Economic Commitments bundle Economic Agreement / Contract bundle Commitment reciprocal Commitment 3 fulfills 3 fulfills Resource resource-flow Economic Event duality Economic Event resource-flow Resource 3 accountability 3 participation 3 participation 3 accountability Internal Agent External Agent Internal Agent January 26, 2011 Dr. Peter R. Gillett 45

46 Event-Oriented Modeling For many kinds of resources, we want to monitor and control types, as we have discussed: * E.g., we may identify books by ISBN this refers to books of a particular type (title, author, etc.), not to individual copies For other resources, we want to monitor and control individual items: * E.g., individual ships we are building for our customers Sometimes, we want a mixture of both approaches: * E.g., a customer orders an automobile of a particular type... *... but we deliver an specific automobile with a unique VIN These considerations lead us to add typification January 26, 2011 Dr. Peter R. Gillett 46

47 Event-Oriented Modeling REA Ontology Typification * Association between a concrete entity and the abstract specification of its grouped properties * The base classes of the REA Ontology are extended by the addition of related type classes, related to them by the relationship typifies * An entity type is a subset of all the possible instances of the entity: Resource (R) Automobile: Resource type (RT) Automobile model Event (E) Order: Event type (ET) Telephone Order Agent (A) - Customer: Agent type (AT) Business customer * Types may be useful to document business policies i.e., what should happen rather than what did happen January 26, 2011 Dr. Peter R. Gillett 47

48 Event-Oriented Modeling Typification for Business Policies Resource Type business policy Event Type business policy Agent Type typifies typifies typifies Resource 3 resource-flow Event 3 participation Agent * E.g., Only Business Customers may place telephone orders * E.g., Telephone orders will not be accepted for sports cars January 26, 2011 Dr. Peter R. Gillett 48

49 Event-Oriented Modeling Economic Commitments may, minimally, specify only entity types: bundle Economic Agreement / Contract bundle Resource Type 3 specifies Commitment reciprocal Commitment specifies Resource Type 3 typifies 3 fulfills 3 fulfills 3 typifies Resource 3 resource-flow Economic Event duality Economic Event resource-flow Resource 3 accountability 3 participation 3 participation 3 accountability Internal Agent External Agent Internal Agent January 26, 2011 Dr. Peter R. Gillett 49

50 Events * Economic Events Deliveries Payments Deliveries Returns & Allowances * Commitments Orders * Business Events None Resources * Ingredients * Cash Agents * Suppliers * Chefs * Clerks/Cashiers Relationships Current Topics in Accounting Research Homework 1 January 26, 2011 Dr. Peter R. Gillett 50

51 Homework 1 specialize Ingredients consist-of Orders placed-on Suppliers by received on by consist-of Deliveries accepted Consultants paid for by to Cash decrease Payments by Clerks/ Cashiers returned on by decrease Returns & Allowances to January 26, 2011 Dr. Peter R. Gillett 51

52 Homework 1 1..* Approved vendor list 0..* 0..* Ingredients 1..* 0..* Orders 0..* 1..1 Suppliers * 1..* * 0..* * 1..1 Deliveries 1..1 Chefs * * * Cash Payments Clerks/Cashiers * 0..* * Returns & Allowances 0..* 0..* 0..* January 26, 2011 Dr. Peter R. Gillett 52

53 Homework 1 Orders (Order#, [Supplier#], [Chef#], Date) Deliveries (Delivery#, [Order#], [Supplier#], [Chef#], Date) Payments (Payment#, [Account#], [Supplier#], [Clerk#], Check#, Date) ReturnsAllowances (RA#, [Delivery#], [Supplier#], [Chef#], Type, Amount, Date) Ingredients (Ingredient#, Description, QuantityOnHand, ReorderLevel) Cash (Account#, AccountName, Bank, BankAccount#, Balance) Suppliers (Supplier#, Name, Address, Phone#, ContactName) Chefs (Chef#, Name, Address, Phone#, Salary, JobTitle, DateHired, DateLeft) Clerks/Cashiers (Clerk#, Name, Address, Phone#, Salary, DateHired, DateLeft) Deliveries-Payments ([Delivery#], [Payment#], Amount) Orders-Ingredients ([Order#], [Ingredient#], DeliveryDate, Quantity, OrderPrice) Deliveries-Ingredients ([Delivery#], [Ingredient#], Quantity, Price) ReturnsAllowances-Ingredients ([RA#], [Ingredient#], Quantity) Supplier-Ingredients ([Supplier#], [Ingredient#]) January 26, 2011 Dr. Peter R. Gillett 53

54 Papers for Week 1 Chen, Peter P-S "The Entity-relationship Model Toward a Unified Model of Data" ACM Transactions on Database Systems (Vol.1, No.1): pp McCarthy, William E "An Entity-relationship View of Accounting Models" The Accounting Review (Vol. LIV, No. 4): pp McCarthy, William E "The REA Accounting Model: A Generalized Framework for Accounting Systems in a Shared Data Environment" The Accounting Review (Vol. LVII, No. 3): pp McCarthy, William E "The REA Modeling Approach to Teaching Accounting Information Systems" Issues in Accounting Education (Vol. 18, No. 4): pp January 26, 2011 Dr. Peter R. Gillett 54

55 Chen A data model, called the entity-relationship model, is proposed. This model incorporates some of the important semantic information about the real world. A special diagrammatic technique is introduced as a tool for database design. An example of database design and description using the model and the diagrammatic technique is given. Some implications for data integrity, information retrieval, and data manipulation are discussed. The entityrelationship model can be used as a basis for unification of different views of data: the network model, the relational model, and the entity set model. Semantic ambiguities in these models are analyzed. Possible ways to derive their views of data from the entity-relationship model are presented. January 26, 2011 Dr. Peter R. Gillett 55

56 McCarthy 1979 This paper is an extension of previous work aimed at integrating ideas in the field of database systems with accounting theory. Unlike others, however, it does not propose use of a particular type of database system. Instead it concentrates on an overall design methodology the entity-relationship model which transcends specific database theoretical structures. A complete model is specified for a small retail enterprise, and some accounting uses for the derived system are shown. Finally, the use of an entityrelationship model in integrating aspects of measurement theory, casual double-entry, and event accounting with computerized information systems is discussed. January 26, 2011 Dr. Peter R. Gillett 56

57 McCarthy 1982 This paper proposes a generalized accounting framework designed to be used in a shared environment, where both accountants and non-accountants are interested in maintaining information about the same set of phenomena. This framework, called the REA accounting model, is developed using data modeling techniques, and its underlying structure is found to consist of sets representing economic resources, economic events, and economic agents plus relationship among those sets. Correspondence of REA elements with the accounting theories of Ijiri and Mattessich is discussed. Finally, practical use of the model in the database design phases of view modeling and view integration is presented, and some REA presentations of accounting objects are reconciled with those representations found in conventional double-entry systems. January 26, 2011 Dr. Peter R. Gillett 57

58 McCarthy 2003 The REA model was first conceptualized in a paper for the 1982 The Accounting Review as a framework for building accounting systems in a shared data environment, both within the enterprise and between enterprises. The model s core feature was an object pattern consisting of two mirror-image constellations that represented semantically the input and output components of a business process. The REA acronym derives from that pattern s structure, which consisted of economic Resources, economic Events and economic Agents. Simultaneous with it research publication, REA began to be used as a framework for teaching accounting information systems (AIS) originally at Michigan State University and then gradually at other colleges and universities. In its extended form, the REA model integrates the teaching of accounting transaction structures, commitment and business policy specification, business process engineering, and enterprise value chain construction. As of 2003, REA modeling is used in a variety of AIS courses and featured in a variety of AIS textbooks, both in the United States and internationally. January 26, 2011 Dr. Peter R. Gillett 58

59 Questions? January 26, 2011 Dr. Peter R. Gillett 59

60 Homework 2 Download and read the Ash Accounting case from Blackboard (under Assignments) Prepare UML diagrams, and Data Repository Structures for: * Finance Significant Events: Negotiate Loan (C), Receive Loan (E), Repay Loan (E) * Purchases * Fixed Assets Submit as a WORD document via Blackboard I recommend, but do not require, VISIO 2003 Come to class prepared to discuss Client Services, Billings & Cash Collections, and Human Resource Management you do NOT need to turn these in January 26, 2011 Dr. Peter R. Gillett 60